It’s the coolest industry in the world, right? Well, maybe it is, but for all the government claims of tax flow, it doesn’t seem to be the most lucrative. Now, as industry giant Canopy Growth makes deals to sell its retail locations, what does this really say about our coolest new industry?
Canopy Growth selling its retail locations could signal a big problem in the retail weed market. This news site is an independent resource for stories in the growing cannabis and psychedelics industries of today. Subscribe to the Cannadelics Weekly Newsletter for regular updates to your email, and to get access to a host of awesome deals on a range of products including vapes, smoking devices, edibles, other cannabis paraphernalia, and the highly-in-demand cannabinoid compounds Delta 8 & HHC. You can find more info in our ‘best of’ lists, so head on over, and pick out the products you’re most happy to use.
Who the heck is Canopy Growth?
A decade ago, cannabis companies weren’t much of a thing. Sure, there were some medical markets opening, but recreational was still years away, and the same issue of federal government illegalization kept anything from really popping on a huge level. Plus, weed was still illegal for all purposes nearly everywhere in the world at that time, so no large global markets existed.
Since then, the cannabis industry has become a real thing, complete with verticals from seed to sale. And while we hear of all the money its worth, and projections for how big it *could get, the reality has been creeping alongside the whole time; that it’s not quite the lucrative industry so many predicted. In fact, it’s quite the opposite, a very much struggling industry. This is exemplified by recent news of industry giant Canopy Growth, making plans to sell off its 28 brick-and-mortar retail locations.
Canopy Growth isn’t a nobody in the industry. The company, based out of Swiss Falls, Ontario, in Canada, was the largest cannabis company in 2019 in terms of stock value. Canopy Growth came out of a merger between Tweed Marijuana, Inc, and Bedrocan Canada, in 2015. The company has the designation of being the first Canadian cannabis company to be federally regulated, licensed, and publicly traded in North America.
It trades under WEED on the Toronto Stock Exchange, and opened in the New York Stock Exchange under CGC in 2018. It was the first cannabis producer to enter the NYSE. Canopy was also the first company to make a recreational cannabis sale when it was officially legalized in Canada. This took place in a Tweed store located in St. John’s, Newfoundland and Labrador.
Back in November 2016, the company was singled out as the first unicorn of the weed industry, with a $1 billion valuation according to the Financial Post. The company operates dispensaries through its subsidiary Tweed, Inc. in the provinces that allow a private sector market, including Manitoba, Saskatchewan, and Newfoundland and Labrador. It operates as well in Manitoba and Ontario under the brand name Tokyo Smoke.
By 2018, the company had market capitalization exceeding $14 billion, and Canopy even funded Professorships in Cannabis Science at University of British Columbia in Vancouver. However, the company’s quick rise, started to falter in 2018. The biggest issue stemmed from Canopy’s attempt to make greenhouses in British Columbia and Quebec larger, which led to pretty big losses. How big? In the last quarter of 2018, the company posted losses of $335.6 million for shareholders. Constellation Brands, which held four out of seven board seats at that time, was unhappy with the company’s direction.
All this led to an emergency board meeting where CEO Bruce Linton was thrown out; but this didn’t stop stock prices from falling. In 2019, stock prices slid further down for Canopy, and it was reported that all of the cannabis industry was suffering, showing the lowest numbers since 2017. The company instituted new CEO David Klein in December 2019. By 2020, Canopy was already announcing the closing of stores.
Canopy Growth has operations globally. It’s partnered with Alcaliber S.A. pharmaceutical company in Spain; owns Spectrum Therapeutics GmbH in Germany for medical cannabis imports; is partnered with Spectrum Cannabis Denmark ApS, which cultivates medical cannabis; acquired Annabis Medical, a Czech Republic distributor; as well as Daddy Cann Lesotho, an African medical cannabis supplier; has a partnership with the UK’s Beckley Foundation for medical cannabis; and has other operations in Australia, Brazil, Peru, Chile, and Jamaica.
Canopy Growth sells retail locations
It was already a downhill slide for the weed giant, so this latest news isn’t surprising, but it is a little depressing; especially in what it signals for the legal marijuana industry as a whole. On September, 27th, 2022, the company announced that it was forging agreements to sell off its retail market locations throughout Canada. This includes retail stores under both the Tweed and Tokyo Smoke brand names.
OEG Retail Cannabis, already a Canopy partner that owns and operates franchises of Tokyo Smoke stores in Ontario, will take all of Canopy’s corporate stores outside Alberta, and all intellectual property related to Tokyo Smoke as well. Canopy also reached an agreement with the company 420 Investments Ltd., in which the latter will take ownership of five retail locations within Alberta. Neither deal is officially closed, as they are both subject to regulatory oversight and approval.
While this doesn’t necessarily say good things about how Canopy Growth sees the retail market, it’s certainly not the end of the company, which is using this move as a way to refocus attention elsewhere. According to its press statement, the company will continue on with a focus on premium cannabis consumer packaged goods.
According to David Klein, “We are taking the next critical step in advancing Canopy as a leading premium brand-focused CPG cannabis company while furthering the Company’s strategy of investing in product innovation and distribution to drive revenue growth in the Canadian recreational market.”
He continued of the deals, “By realizing these agreements with organizations that possess proven cannabis retail expertise, we are providing continuity for consumers and team members. Through the best-in-class retail leadership that OEGRC and FOUR20 have demonstrated, they will continue to serve Canadian consumers with the high-quality in-store experiences that are essential for success in a new industry.”
It’s expected that this change will lead to operational savings for the company. These savings are projected to put the company back at the high end of their yearly target range. The company announced its overall cost reduction plan earlier this year in April.
What does this mean for the cannabis industry?
Companies switch direction all the time, or take on new ventures. Technically, it’s not that weird for a company to see a different aspect of a market, and go towards it. Cannabis food products are getting quite popular, so it could be seen as Canopy Growth simply changing lanes for the drive forward.
But there are some other stark realities to this situation. Realities that are often hidden behind announcements of all the cannabis tax income for states. The reality that this industry is not bringing in nearly as much revenue as expected. That the black market is a formidable opponent that many still prefer, and that legal markets were instituted with taxes so high, that it makes legal operators struggle to stay afloat. Sure, some companies are making money, but not that many.
It’s easy to forget that one of the biggest winners in the weed game is not private companies, but government entities. And for them, this is all new income; so whether its high or low, its adding money to government coffers. Think of how much cigarettes cost because of those ‘sin’ taxes meant to dissuade us from buying them. Obviously, sin taxes don’t work, but what they do mean, is that as we continue to buy these sinful products (in the same quantities as when they weren’t taxed to kill us), the government reaps the benefits.
Philip Morris still makes plenty of money from cigarettes, but probably not as much as the government. In Mexico, for example, its reported that an entire 70% of the price of a pack of cigarettes, is taxes. That governments have turned taxing items into a full industry, means that governments can profit off an industry as much, or more, than the actual companies within it. Such is the case right now with cannabis, where tax money is coming in, but the markets themselves are waning.
This whole concept was exemplified well by economists Daniel Sumner and Robin Goldstein, who together put out the book Can Legal Weed Win?: The Blunt Realities of Cannabis Economics. The two UC Davis, Department of Agricultural and Resource Economics professionals, who did an interview for TIME magazine, point out how the legal weed industry is very much weighed down by overly strict regulatory measures, a market competitive within itself and with the black market, and because of a host of agricultural issues that come up in the industry.
As Sumner put it, “There are companies that have done well and there are lots of companies that have not done well at all. There are growers that are doing OK and there are lots of farms that are not doing OK at all… It’s been a gold rush and a few people have found some gold and a lot of people haven’t.”
Goldstein explained further about investing in the industry, that “The ones that are probably making the safest money are probably the ones who were taking flat fees… But folks who took their compensation in the form of shares in these big cannabis holding companies, those stocks have not done well on the whole.”
If this doesn’t sound like the headlines blaring about a massive and growing weed industry, with no obstacles in its way, that’s because those headlines mainly speak in market projections, and market projections aren’t real. That’s the nature of projections, they’re just someone’s thoughts, but they’re not facts, or indicative of what will actually happen. Market projections were extremely high for the cannabis industry, but that never meant they had to be realized.
In actuality, according to Sumner, “People say this is a $100 billion industry. Robin and I are skeptical of that, but there could be a $10 billion industry, which is a lot of money if shared among a few players… We’ve seen nothing like the consolidation yet where the really big money could be coming. We haven’t even seen an indication that it’s going that direction.”
Canopy Growth is one of those big players, which is why this move is a possible signal of a bigger problem; namely an inability to really make enough money outside of projections. After all, why would a leader in the retail cannabis industry, give up that part of their business in an effort to recoup losses? As Canopy Growth sells its retail locations and exits that part of the game, we should wonder who can survive in the market, if this company can’t.
The news that Canopy Growth is selling its retail locations to focus on other aspects of the market in an attempt to recoup losses, is a pretty big indication that its a bumpy ride in the cannabis retail industry. What will happen next for Canopy Growth and the market in general? Stay tuned to life to find out.
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